RESPA and Referral Fees

Issue/Inquiry

For residential and consumer loans, can a bank direct and recommend a specific title company to obtain a title insurance policy? If so, is the bank able to accept a referral fee as a percentage of the premiums for such a referral?  How would this fee be handled under TRID?

Response Summary

The TRID rules allow a creditor to list a service provider for a required service the consumer is permitted to shop for. However, Section 8 of RESPA prohibits a creditor from accepting a fee for referring business to any person in conjunction with a federally-related mortgage loan.

Response Detail

Under the TILA-RESPA Integrated Disclosure (“TRID”) rules, if the consumer is permitted to shop for a settlement service, the creditor must provide the consumer with a written list identifying available providers of that settlement service and stating that the consumer may choose a different provider for that service. The creditor must identify at least one available provider for each settlement service for which the consumer is permitted to shop. 12 CFR §1026.19(e)(1)(vi)(C).

This means that the Bank can direct the consumer to a particular title company by listing that company as a provider for the required service. The consumer may choose that title company or another title company to perform the service.

There are restrictions on the fees a creditor can collect in conjunction with federally related mortgage loans. Section 8 of the Real Estate Settlement and Procedures Act (“RESPA”) provides as follows:

• Business referrals. No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

• Splitting charges. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. 12 U.S.C. 2607.

Regulation X, which implements RESPA, provides examples of transactions in violation of Section 8, including a lender that encourages consumers receiving federally-related mortgage loans to employ a particular attorney to perform title searches, in return for which the attorney will perform legal services for the officers and employees of the lender at abnormally low rates. 12 CFR §1024, Appendix B, 2.

The RESPA section 8 requirements mean that the Bank cannot collect a fee or obtain other compensation for referring customers to a title company or for listing the title insurance company as a provider on the written list of providers required by the TRID rules. To the extent a creditor can collect a fee or other compensation, it must be for services actually performed and must be based on the market value of those services and not upon the value of the business referred between the parties.

NOTE:  A RESPA section 8 violation is typically one of those issues most criticized by examiners. These types of violations were “enforced” to near extinction. As such, although quite uncommon these days, these violations are still viewed as highly consequential oversights.

 

This entry was posted on Monday, July 17th, 2017 at 1:34 pm.